Housing Development Associates qualified for and received $75,000 in Community Development Block Grant (CDBG) funding in on July 17, 1996, to support the construction of a 26-unit affordable housing development apartment complex, the Eighth Avenue Apartments, located on 811, 821, 831 and 841 North 17th Street in Billings. This project also qualified for and received financial support from the Low Income Housing Tax Credits program managed by the Montana Board of Housing. As a condition of the use of the City’s CDBG funding, the complex was to remain affordable for a minimum of 20 years, at which time the repayment requirement for this loan was to be forgiven on July 17, 2016.

Housing Development Associates, a developer, created the 8th Avenue North Limited Partnership which currently owns the Eighth Avenue Apartments. RGP Partnership will take over management of the complex, with Daniel J. Hickey and Michael Ross identified as principals. Both Mr. Hickey and Mr. Ross were principals in the original Housing Development Associates organization. As part of this restructuring, RGP Partnership would like to refinance the Eighth Avenue Apartments project with a new loan in order to secure ownership under the new partnership, improve interest rates and further combine financing with another 20-unit apartment complex RGP Partnership owns in Great Falls.

The CDBG loan on the Eighth Avenue Apartments project is eligible for subordination, as it was established as a zero percent, no payment, forgivable loan, provided the complex remain affordable for low income tenants throughout the period of affordability. RGP Partnership has provided compliance documentation for several recent years, indicating to City staff that the project is in compliance with the provision of affordable rents to low-income tenants. RGP Partnership has agreed to continue to provide the Community Development Division with annual compliance reporting on low income tenancy throughout the remainder of the affordability period.

The Eighth Avenue Apartments in Billings and the Townsite Apartments in Great Falls collectively have current mortgages totaling approximately $1,311,302, not including the City of Billings forgivable loan of $75,000 and a similar loan of $35,000 to Neighborhood Housing Services in Great Falls. The Eighth Avenue Apartments were appraised in October 2009 for $1,160,000 and the 20-unit Townsite Apartments in Great Falls has a current appraised value of $650,000, creating a combined current appraised value of $1,810,000. The new loan would total $1,357,500, creating a loan-to-value ratio of 75%, which is acceptable in the current market. The owners would roll over $26,000 in additional debt into the new first mortgage to accommodate improvements in both apartment complexes; an estimated $16,000 would be utilized specifically on the Eighth Avenue Apartments to install new carpeting.

After reviewing the value of the combined properties to the total loan amount, City staff analysis confirms that both properties retain enough value to support the new mortgage and will also support the City’s interest in the property at $75,000 in second lien position.

City Council may:

• Approve the subordination request for a new loan in support of this affordable housing project, furthering the longevity of the project and ensuring the project remain affordable; or
• Deny the subordination request for a new loan.

There is little financial risk to subordinate the City’s $75,000 investment to the new loan. The City would remain in second position, subordinate to the new loan. The $75,000 loan would be have to be repaid to the City if the property is sold or if the owner no longer meets affordability / reporting requirements, prior to the end date of the affordability period, which is July 17, 2016.

Staff recommends that Council subordinate the City’s lien securing a $75,000 Community Development Block Grant Loan to a new First Interstate Bank loan in the amount of $1,357,500 for the Eighth Avenue Apartments.